conventional loans

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The Loan-to-Value Ratio (LTV) is a percentage used to describe a loan amount compared to a property valuation. Lenders often use LTV Ratios to determine evaluate mortgage risk, determine applicant approval, and if they’ll be required to carry mortgage insurance. In general, higher LTV ratios represent increased risk to the lender. Therefore, high LTV mortgage loans are usually required to carry mortgage insurance. The LTV ratio is contingent on a property’s appraised value, as determined by the lender and mortgage program.

How is Mortgage LTV Calculated?

Loan-to-Value is calculated several ways, depending on the purpose of the mortgage. For a home purchase loan, the LTV is calculated based upon the sales price. For a refinance, the LTV is calculated based upon the appraised value of the home. The LTV ratio for either method is determined by dividing the loan amount by either the purchase price or total appraised value of the subject property.

Example: Let’s assume you want to purchase a home that has an appraised value of $100,000. If you have $20,000 available for a down payment, then you’ll need to borrow another $80,000, or 80% of the purchase price. Therefore, your ‘Loan-to-Value’ is 80%.

Conventional LTV Ratio Limits: Home Purchase

Maximum Conventional LTV Ratios vary based upon several factors including mortgage type, loan purpose and the number of units in a property. Loan-to-value determines mortgage approval decisions within conventional loan requirements, and also if a borrower is required to carry Private Mortgage Insurance (PMI).

Conventional loans had maximum LTV limits of 80% historically, but that’s all changed. These days, applicants can get conventional loans with LTV ratios of up to 97%.

Residence Usage

Fixed-Rate Mortgage (FRM)

Adjustable-Rate Mortgage (ARM)

1 Unit Primary

97% LTV

90% LTV

2 Units Primary

85% LTV

75% LTV

3 Units Primary

75% LTV

65% LTV

4 Units Primary

75% LTV

65% LTV

1 Unit Second Home

90% LTV

80% LTV

1 Unit Investment

85% LTV

75% LTV

2 Units Investment

75% LTV

65% LTV

3 Units Investment

75% LTV

65% LTV

4 Units Investment

75% LTV

65% LTV

Conventional LTV Limits: Rate-Term Refinance

Rate-Term Refinance is considered any refinance where the borrower doesn’t get cash back. These no-cash-out refinance options are used to lower a homeowner’s payments and interest rate. Rate-term refinance loans usually allow higher loan-to-values than for borrowers trying to take cash out.

Residence Usage

Fixed-Rate Mortgage (FRM)

Adjustable-Rate Mortgage (ARM)

1 Unit Primary

97% LTV

90% LTV

2 Units Primary

85% LTV

75% LTV

3 Units Primary

75% LTV

65% LTV

4 Units Primary

75% LTV

65% LTV

1 Unit Second Home

90% LTV

80% LTV

1 Unit Investment

75% LTV

65% LTV

2 Units Investment

75% LTV

65% LTV

3 Units Investment

75% LTV

65% LTV

4 Units Investment

75% LTV

65% LTV

Conventional LTV Limits: Cash-Out Refinance

Cash-Out Refinance loans are used when a borrower has equity in a property they want to turn into liquid cash. Because these loans often increase lender risk, they generally employ stricter LTV ratio requirements than no-cash-out refinance loans.

USDA LTV Limits: Purchase or Streamline Refinance

USDA loans are a zero down payment mortgage program, which means they’re offered with LTV’s of 100%. Technically, USDA loans are offered with a maximum loan-to-value of 102% because of the 2% “Guarantee Fee” may be rolled into the mortgage amount and paid over the duration of the loan.

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